Tuesday, October 6, 2009

New York Times has difficulty with private equity

I don't get it.  The article says that private equity portfolios are being sold at between 29.3 cents on the dollar and 51.58 cents on the dollar, measured at net asset value.  I believe some discount so I would accept these numbers and trust the article. 

Except for the baffling sentence two paragraphs later:  "But what happens if Stanford is able to sell its stake at only 50 cents on the dollar, for example, when K.K.R. is listing it at 80 cents? If other endowments hold similar stakes, what happens to their value?"

Huh?  Isn't KKR's listed stake the net asset value?  Perhaps the article means 29.3 cents on the invested capital?  But who in their right mind is applying a discount off of entry price rather than their judgment of current value?  What is this "dollar" referring to?  In the KKR context, I think it is of invested capital.  In Stanford's case, I think off of KKR's reported value (which is lower than entry value).  But, of course, I have no idea because the article is sloppy.

Notwithstanding private equity's larger mindshare and increased column inches, the press still has a long way to go before it understands even the basics, I think.

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